Federated (FHI) Q3 Earnings Top Estimates, AUM Increases
Federated Hermes FHI reported third-quarter 2020 earnings per share of 85 cents, outpacing the Zacks Consensus Estimate of 73 cents. The figure also compares favorably with the prior-year quarter earnings of 72 cents.
Higher revenues, controlled expenses and improved assets under management (AUM) were driving factors. Also, the company’s liquidity position was strong. Yet, equity and multi assets position disappointed.
Net income was $85.8 million compared with the year-ago quarter’s $73 million.
Revenues Climb on Higher AUM, Costs Stable
Third-quarter total revenues climbed 7% year over year to $364.5 million. Also, the top line surpassed the Zacks Consensus Estimate of $356 million. This top-line growth mainly stemmed from higher average money market and fixed-income assets, partly negated by voluntary fee waivers associated with certain money market funds in order for those funds to maintain positive or zero net yields.
Also, net investment advisory fees jumped 12% year over year to $260.1 million. In addition, administrative service fees grew 29% to $83 million. Yet, net service fees (other) plummeted 52% to $21.3 million.
During the July-September quarter, Federated derived 39% of its revenues from money-market assets, 38% from equity, 14% from fixed-income assets, 8% from alternative/private markets and multi asset, and the remaining 1% from sources other than managed assets.
The company recorded non-operating income of $6.2 million in the reported quarter, down 17% from the prior-year quarter.
Total operating expenses remained flat at $251.1 million year over year. Higher compensation and professional service fees, along with systems and communications, were offset by lower distribution and travel expenses, office and occupancy, advertising and promotional, along with other expenses.
Asset Position Steady
As of Sep 30, 2020, total AUM came in at a record $614.8 billion — up 17% year over year. Average managed assets summed $628.1 billion, up 21% year on year.
Federated witnessed money-market assets of $433 billion, up 21% from the year-ago period. Further, fixed-income assets were up 21% year over year to $79.5 billion.
Nevertheless, equity assets of $80.4 billion were slightly down year over year. Also, multi-assets decreased 9.8% to $3.7 billion.
As of Sep 30, 2020, cash and other investments were $437.2 million and total long-term debt was $90 million compared with $340.6 million and $100 million, respectively, as of Dec 31, 2019.
During the third quarter, the company repurchased 866,900 of Federated Hermes class B common stock for $20 million.
Our Viewpoint
Federated displays substantial growth potential, supported by its diverse asset and product mix as well as a solid liquidity position. In addition, acquisitions are anticipated to be beneficial for the company. Though uncertain markets pose a concern, higher revenues will likely aid its bottom-line performance.
Federated Hermes, Inc. Price, Consensus and EPS Surprise
Federated Hermes, Inc. price-consensus-eps-surprise-chart | Federated Hermes, Inc. Quote
Currently, Federated carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Investment Managers
Cohen & Steers’ CNS third-quarter 2020 adjusted earnings of 67 cents per share surpassed the Zacks Consensus Estimate of 60 cents. Moreover, the bottom line was 3.1% higher than the year-ago reported figure. Results primarily benefited from an improvement in revenues, partly offset by higher expenses. Despite net inflows, the company witnessed a marginal fall in AUM balance.
Franklin Resources Inc. BEN reported fourth-quarter fiscal 2020 (ended Sep 30) adjusted earnings of 56 cents per share, which missed the Zacks Consensus Estimate of 69 cents. Results also compared unfavorably with the earnings of 71 cents per share recorded in the prior-year quarter. The company’s results displayed revenue growth, with support from solid rise in investment management fees during the quarter. Also, higher AUM was a positive. However, rise in expenses and net outflows were the undermining factors.
T. Rowe Price TROW delivered third-quarter 2020 adjusted earnings per share of $2.55, which outpaced the Zacks Consensus Estimate of $2.53. The reported figure also climbed 19.7%, year on year. Results were driven by higher revenues, backed by an upsurge in investment advisory fees. Also, AUM improved. Nonetheless, escalating expenses were an undermining factor.
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